Harmony Biosciences Holdings, Inc.

Good morning, everyone. My name is Todd, and I will be your conference operator today. At this time, I would like to welcome everyone to Harmony Biosciences' fourth quarter and full year 2022 financial results conference call. All participants have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star one on your telephone keypad. Please be advised that today's conference may be recorded. Lastly, if you should require operator assistance, please press star zero. I will now turn the call over to Phuiz Sanai, head of investor relations. Please go ahead.

Phuiz Sanai Thank you, operator. Good morning, everyone, and thank you for joining us today as we review Harmony Biosciences' fourth quarter and full year 2022 financial results and provide a business update. Before we start, I encourage everyone to go to the investor section of our website to find the materials that accompany our discussion today, including a reconciliation of our GAAP to non-GAAP financial measures. At this stage of our life cycle, we believe non-GAAP financial results better represent the underlying business performance. Our presenters on today's call are Dr. Jeffrey Dano, Interim CEO and Chief Medical Officer, Jeffrey Dirks, Chief Commercial Officer, and Sandeep Kapadia, Chief Financial Officer. Moving on to slide two. As a reminder, we will be making forward-looking statements today, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties. Our actual results may differ materially and we undertake no obligation to update these statements even if circumstances change. We encourage you to consult the risk factors referenced in our SEC filings for additional details. I would now like to turn the call over to Dr. Jeffrey Dana. Jeff?

Thank you, Louis, and thank you, everyone, for joining our conference call today. We delivered another strong quarter in Q4, finishing the year with continued momentum in our commercial business for Wacix, as well as in the advancement of our clinical development programs for Pitolisin. We are excited for 2023 and remain confident in the ongoing execution of our three-pillar growth strategy to further evolve Harmony into a leading rare disease company focused on delivering innovative therapies for patients living with rare neurological diseases. Harmony remains a growth story with a focus on advancement of our life cycle management programs for Pitocin and acquisition of new assets to build out our pipeline to drive additional growth. With that as our focus, I am excited to lead the company forward. After 12 years as a practicing neurologist taking care of patients, followed by 25 years in the industry touching every aspect of the business, I bring a unique perspective to the development and commercialization of innovative treatments that address major unmet medical need. I have seen the impact that these treatments can have on patients and their families, and I'm proud of the progress we have made. I also know that Harmony is poised for continued growth with our goal to help even more patients living with rare neurological diseases. I will now briefly highlight our progress on each of the three pillars of our growth strategy, in the context of Q4 2022 performance. Starting with pillar one, which is to optimize the commercial performance of WCAGX. We delivered WCAGX net revenue for the fourth quarter and full year 2022 of $128.3 million and $437.9 million respectively, representing an increase of 41% and 43% year over year. Our performance reflects the strong commercial execution by our team, the underlying demand for WCAGS, and the significant unmet need that remains in the narcolepsy market. For 2023, we expect continued growth for WCAGS and believe that the vast market opportunity which remains in narcolepsy, along with the differentiated product profile of WCAGS, provides us with the ability to grow WCAGS for years to come. At Harmony, this also translates into an opportunity to help even more adult patients living with narcolepsy. Moving to Pillar 2, which is to expand the clinical utility of Pitocin beyond narcolepsy. We are extremely pleased with the progress that we have made across all our pipeline and life cycle management programs, and I will provide more details on these during the clinical update later in the call. Briefly, In idiopathic hypersomnia, or IH, we continue to see strong momentum in our phase three in tune study. This opportunity, if successful, could be the next potential new indication for Pitocin. In Prader-Willi syndrome, or PWS, we are analyzing the full data set from our phase two proof of concept study in preparation for an end of phase two meeting with the FDA. It is our intent to advance the PWS program to a phase three trial. Overall, our life cycle management programs for Pitocin in total could address unmet medical needs in up to 100,000 diagnosed patients living with IH, PWS, and myotonic dystrophy. An opportunity that is successful would more than double our diagnosed patient opportunity. We are committed to advancing these development programs and are hopeful that these efforts could lead to additional new indications for Pitocin and address the unmet medical needs in these patient populations. And finally, pillar three, acquiring new assets through business development to expand our portfolio beyond WACICS. Our dedicated business development team has been actively assessing the landscape as it is our intent to build out a broad pipeline of rare orphan neurology assets and or assets in other neurological diseases where we can leverage our existing expertise and infrastructure. To achieve this, we intend to leverage our strong financial position to acquire additional assets across a range of development stages, including both early and later stage, with the potential to launch both during and after the WCAG life cycle. We are in a solid position to execute on Pillar 3 as our business fundamentals with WCAG remain strong, and we ended the year with approximately $346 million in cash, cash equivalents, and investment securities. Overall, I'm extremely pleased with the progress that our team has made on our three pillar growth strategy. We remain very confident in WCAG being a potential $1 billion plus franchise in the coming years by an narcolepsy and additional indications, and are truly excited for 2023, during which our team will remain focused on executional excellence. I will now turn the call over to Jeffrey Dirks, our Chief Commercial Officer, to provide more details on our commercial performance. Jeff?

Thanks, Jeff. Q4 represented another strong quarter of performance for WACICS. and 2022 full-year performance demonstrated strong overall growth and momentum in our underlying business fundamentals. Net revenue for the fourth quarter was $128.3 million, representing a 41% increase from the same quarter prior year. Full-year 2022 net revenue was $437.9 million, which represented a 43% increase from full-year 2021. Our strong performance reflects not only the resilience and commitment of our team, but also speaks to the strong underlying demand for WACICS. I'd like to take a moment to highlight a few of our underlying business fundamentals on slide five that drove our performance in the fourth quarter of 2022. The average number of patients on WACICS increased to approximately 4,900 in the fourth quarter of 2022. The growth in Q4 continues to reflect how the meaningfully differentiated product profile aligns to the unmet needs in the narcolepsy market. Growth in the average number of patients on WCAG was driven by the following factors. Harmony Field Sales in-person engagement with healthcare professionals and their office staff remained strong in the fourth quarter. Approximately 85% of all Harmony Field Sales engagement with healthcare professionals and their office staff were in-person in the fourth quarter. The accessibility of our field sales team with healthcare professionals and their office staff allowed for further education and engagement, helping to drive growth in the depth and breadth of the WCICS prescriber base. We saw further growth in the number of new writers of WCICS, as well as growth in prescribing from existing writers in the fourth quarter of 2022. Growth in new prescribers is driven by both writers of traditional narcolepsy treatments, as well as healthcare professionals who have been reluctant to prescribe other available narcolepsy treatments that are scheduled as controlled substances, including the approximate 1,000 prescribers we added to our call plan earlier in 2022. Existing prescribers of WAKES continue to find new adult patients with narcolepsy in their practices. both naive patients as well as existing patients currently on other treatments with residual symptoms of excessive daytime sleepiness or cataplexy. The continued growth in both the depth and breadth of our prescriber base demonstrates the broad clinical utility of WAKIX and the broad narcolepsy patient opportunity for the brand. Our performance in Q4 reflects the contribution of our field Salesforce expansion from earlier in 2022. Our expanded team was able to reach more narcolepsy-treating healthcare professionals with greater frequency to educate them on the meaningfully differentiated product profile of WACICS, helping to drive the growth that we saw in new and existing riders in Q4. Now in the third quarter of our expansion, the benefits of our expanded field sales team are now reflected in our base business, and we are excited about the impact we've seen from our entire award-winning sales team. Looking ahead, we believe there is still a significant opportunity for growth in the years to come for WAKIX and adult narcolepsy, and recent market research commissioned by Harmony reinforces our belief. Research conducted with 70 healthcare professionals with and without experience with WAKIX showed that more than 95% of healthcare professionals with WAKIX experience stated they would rate the same or increase prescribing of WAKIX in the next six months. and nearly half of those who had not prescribed WAKIX to date stayed intent to prescribe WAKIX in the next six months. We believe our growth will persist as we enter our fourth year of commercialization in this rare orphan patient population in 2023. We will continue to tap into the large remaining opportunity in narcolepsy, as the market allows, around the typical seasonal dynamics that the pharmaceutical industry as a whole experience each year. We expect typical seasonal payer dynamics and normalization of trade inventory in Q1, followed by stronger prescription demand in the second quarter, summer seasonality with fewer patient visits in Q3, and a stronger Q4 as patients look to fill their prescriptions before the end of the year. In summary, we are extremely pleased at the growth of WACICS. and we believe our strong performance highlights the need for the meaningfully differentiated product profile of WAKIX and affirms our confidence in the future growth opportunity for WAKIX in adult narcolepsy. We continue to believe that WAKIX is a potential billion-dollar-plus franchise opportunity in narcolepsy and additional indications, and are excited about our ability to help additional adult patients living with narcolepsy and other rare diseases in the future. I'll now turn the presentation back over to Jeff Dano for an update on our clinical development programs.

Jeff? Thank you, Jeff. Moving to pillar two of our company growth strategy, to expand the clinical utility of Pitocin toward potential new indications in additional patient populations living with rare neurological diseases, as shown on slide six, which depicts our development pipeline. starting with our development program in idiopathic hypersomnia, which we are very excited about. We continue to see strong momentum in our Phase III registrational trial in adult patients with IH, known as the InTune study. We now have approximately 85% of our clinical trial sites active, and patient enrollment is progressing well. If this Phase III trial is successful, it could represent the next new indication for WACICS, in adult patients with IH. We plan to provide an enrollment update later in the year. For PWS, as I mentioned in my opening comments, we received a full data set from our phase two proof of concept trial at the end of last year. As you may recall, last November we announced that the top line data showed a positive signal on the primary outcome of excessive daytime sleepiness in this trial. We are currently analyzing the full data set in preparation for an end of phase two meeting with the FDA to discuss the trial results. It is our intent to advance the PWS program to a phase three trial and we will provide an update on our progress later this year. In addition, our plan is to present the findings of the phase two proof of concept trial at a future medical meeting and submit the full results for publication to a scientific journal. Moving on to our development program in myotonic dystrophy, or DM, enrollment continues in our Phase II proof-of-concept study in adult patients with Type I myotonic dystrophy, or DM1. We anticipate top-line data from this Phase II proof-of-concept study in the fourth quarter of 2023. Regarding pediatric narcolepsy and a pediatric indication for WAKEX, our partner, BioPregé, received a positive opinion from the European Medicines Agencies, or EMA, Committee for Medicinal Products for Human Use, or CHMP, last month with an approval for a pediatric narcolepsy indication expected by the EMA within 60 days of the positive CHMP opinion. We will now work with BioPregé on a path forward toward the submission of a supplemental NDA for pediatric narcolepsy to the FDA. Finally, regarding our efforts in pursuit of pediatric exclusivity, which represents a different regulatory pathway compared to gaining a pediatric indication, we received feedback from the FDA and additional guidance based on that request for a pediatric written request, which we submitted in the third quarter of 2022. Based on this feedback, we will now prepare a proposed pediatric study request and submit it to FDA to gain alignment with the agency in our pursuit of pediatric exclusivity for WACICS. We will provide an update on our interactions with the FDA later this year. To conclude, we have made significant progress in advancing our clinical development programs with Pitocin and look forward to providing you with further updates later this year. I also want to take a moment to thank all the patients and their families who are participating in our clinical trials, as well as the clinical investigators for all of their efforts and commitment in helping us to advance our development programs for Pitocin. I will now turn the call over to our CFO, Sandeep Kapadia, for an update on our financial performance. Sandeep?

Thank you, Jeff, and good morning, everyone. This morning, we issued our fourth quarter press release and filed our 10-K, where you'll find the details of our fourth quarter and full year 2022 financial and operating results. Our financial performance is also shown on slides 7, 8, and 9. We finished the year strong and delivered growth across several of our key metrics. We reported strong net revenue growth for the quarter and full year, as well as achieved our second full year of profitability. In addition, we continued to generate cash from operations and remained well-positioned to execute on our three-pillar growth strategy. Let me take a moment to take you through our results in detail. For the fourth quarter of 2022, we reported net revenues of $128.3 million. compared to $91.2 million in the prior year quarter, representing a growth of 41%. On a full year basis, we delivered net revenues of $437.9 million, a 43% increase over 2021. Our performance reflects the strong underlying demand for wages. In the fourth quarter of 2022, operating expenses were $53.8 million compared to $44.8 million in the prior year quarter, with full year 2022 operating expenses of $234.2 million. The higher operating expenses were primarily driven by our ongoing commercialization of waste kits and advancement of our clinical development programs. Operating income improved both on a quarterly and yearly basis, We reported fourth quarter 2022 operating income of $47.6 million, compared to $28.6 million in the prior year quarter, representing an increase of 66%. On a full year basis, operating income was $120.2 million, compared to $87.5 million in 2021, representing a year-over-year increase of 37%. Non-GAAP adjusted net income for the fourth quarter of 2022 was $61.9 million, or $1.01 per diluted share, compared to $30.4 million, or $0.50 per diluted share, in the prior year quarter. Non-GAAP adjusted net income for the full year of 2022 was $183.5 million, or $3 per diluted share, reflecting our strong revenue growth and prudent expense management. We believe non-GAAP-adjusted net income better reflects the underlying business performance. Please see our press release for a reconciliation of GAAP to non-GAAP results. During the fourth quarter of 2022, we generated approximately $27 million of cash from operations and ended the year with $345.7 million of cash, cash equivalents, and investment securities. On a full year basis, we generated approximately $145 million of cash from operations. Excluding the $30 million licensing fee, part of the 2022 LCA with BioBriget that was paid in the fourth quarter, cash from operations for the fourth quarter and full year were approximately $57 million and $175 million, respectively. Regarding the outlook of our business, we have demonstrated consistent performance for the past three years across several of our key metrics and feel this is efficient to appropriately model our business. For the full year of 2023, we expect another strong year of revenue growth for WCAG and remain confident in WCAG being a potential $1 billion-plus franchise in the years to come, along with narcolepsy and other indications. With respect to Q1, we expect the typical industry-wide headwinds from higher gross to net deductions and normalization of trade inventories. However, we do expect strong year-over-year net revenue growth for Q1. With respect to expenses, we expect to continue to invest in R&D and SG&A as we advance our clinical development programs and support the strong commercialization of WASICs. And finally, a comment on our tax rates. We have used up the majority of our net operating losses, and thus we expect our go-forward tax rate to be in the mid to high 20% range. In conclusion, we're very pleased with our strong financial performance, which further strengthens our company profile of growth and profitability, enabling us to execute on our three-pillar growth strategy. And with that, I'd like to turn the call back to Jeff for his closing remarks. Jeff?

Thank you, Sandeep. In summary, our strong performance in 2022 positions us well to execute on our strategy. With a strong commercial performance and anticipated future growth of WCAGS and narcolepsy serving as our foundation, we look to our lifecycle management programs to drive additional growth for Harmony in the coming years. With active pitocin development programs in idiopathic hypersomnia, Prader-Willi syndrome, and myotonic dystrophy, along with HBS-102, Harmony is poised to extend our value proposition beyond narcolepsy into other rare diseases with diagnosed patient populations collectively that exceed 100,000 patients, which would more than double our diagnosed patient opportunity. Couple this with development programs for our new pitocin-based assets and an opportunity to introduce new treatment options for people living with narcolepsy and potentially other rare neurological diseases, we are excited about the future growth potential for the organization. And we have deep talent across our organization and a solid balance sheet and are effectively positioned to achieve the next level of growth. This concludes our plan remarks for today. Thank you for joining our call. And I will now turn the call back over to the operator to facilitate the Q&A session. Operator, can you please open the call to questions?

Yes, sir. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, you may do so by pressing star 2. we remind you to please pick up your handset and please limit yourself to one question and one follow-up question. Again, to ask a question, please press star one. We'll take our first question from Francois Rizvois with Oppenheimer.

Hi, thanks for taking the questions, and congrats on the quarter. Just a couple here. I was just wondering, any thoughts going forward? I know we've talked about the growth of the The revenue and the commercial opportunity here has been pretty linear. But I was just wondering, any thoughts about, you know, at this point it's been launched for a while. Any thoughts about giving certain guidance?

So, Frank, good morning, Frank. Thanks for your question. In terms of, you know, guidance, so I think that, you know, our underlying business fundamentals remain strong. And, you know, as you heard in our remarks, for this year, we expect continued growth for WACICS and believe that, you know, the large market opportunity remains in narcolepsy. And along with the differentiated product profile of WACICS, It provides us with the ability to grow the brand for years to come. And with that, I'll ask Sandeep to comment a little further around your question.

Yeah, thanks, Jeff. You know, look, Frank, overall we've demonstrated, as you mentioned, pretty consistent, you know, performance over the past three years. And we feel that that's, you know, sufficient in terms of, you know, at least for modeling purposes going forward. And, again, we continue to believe there's a large untapped opportunity. So there's certainly growth for many years to come. And I think we're continuing to remain confident in the outlook for Wacox. We think it's a potential plus franchise in the coming years with narcolepsy and other indications.

Okay. Thank you very much. And then just on the seasonality of first quarter, I know it's kind of a normal thing in this space that happens, but I think last year there might have been, you know, a little different aspect to it that, affected the number of patients added on, you know, not just the gross to net, but on the number of patients maybe related to the pandemic. I just wanted to make sure, you know, in terms of the outlook, is this something that you would expect again, or is this more of a natural gross to net kind of impact here?

Yeah, sure, Frank. I'm going to ask Jeff Durff to comment on that question. Yeah, Jeff.

Good morning, Frank. Yeah, so to answer your question, we do expect to face the same seasonal payer dynamics that you expect to see in Q1 every year, the higher gross to net, the higher copay, Medicare out-of-pocket support, inventory normalization, and traditional, typical prescription reauthorization headwinds. We did have a couple of one-time events last year, which we do not anticipate this year, As Sandeep and Jeff have shared, looking into Q1, we do expect year-over-year growth in the quarter and continued growth in the average number of patients for WACICS. And as we enter that fourth year of commercialization, as Sandeep has shared, we kind of have an anticipated rhythm to our business. We've been able to demonstrate that for the last three years, and we're really excited about the growth opportunity in 23 and for years to come. And I think our current performance really affirms our long-term growth outlook for the brand.

Okay, great. I'll cheat here and sneak a quick one here. I just feel like I have to. Any color on the CEO search guidance for a permanent CEO, or is this potentially an interim turning into permanent for Jeff here?

Yeah, Frank, let me respond to that. Thanks for the question. So, obviously, with regard to the CEO position, you know, this is a board decision, and I won't speak on behalf of the board. And we'll provide an update, you know, as appropriate once the board shares their plan on this issue. But, you know, that being said, the board has expressed their confidence in myself and the full management team, and we're all focused on the business at hand and executing on our three-pillar growth strategy. And, you know, as I've shared, you know, Harmony remains a growth story. And our focus, you know, on the advancement of our lifecycle management programs for Pitocin, acquisition of new assets and business development to build out our pipeline, in addition to our strong underlying business fundamentals of Wacix and Narcolepsy. So with that as our focus, you know, I'm well-positioned to lead the company forward. And I'm really excited to work with a very talented management team and the broad talent across our organization.

Perfect. Thank you very much. Congrats on the quarter again.

Thanks, Frank. Thank you. Our next question comes from David Amslin with Piper Sandler.

Hey, thanks, guys. Just had a couple. So first, just curious if you can – talk about how many of the WAKIX prescribers are actually enrolled in the OxyBait REMS. And what I'm trying to get at here is the extent to which you're capturing docs and patients who are OxyBait resistant or OxyBait hesitant. So can you talk about that mix? That's number one. And then number two is a longer-term question. As you think about the potential availability way down the road of the orexin agonist or a product like Axone's riboxetine, how do you think that impacts the longer-term trajectory of WAKIX, if at all? Thank you.

Sure, David. Thanks for your questions. With regards to the oxibate REMS and the HCPs in the REMS. It's a really interesting dynamic, and I'll let Jeff Dirks comment on that. Really interesting dynamic, but our physician universe that we're covering is much broader.

um compared to the number of docs you know in the oxidate rems and jeff you want to expand on that sure um thanks david so when you're looking at wakex prescribers to your point we we have penetrated the you know the vast majority of the oxidate rems enrolled healthcare professionals and based on publicly available data there's probably about 4 000-ish that are in that area but to jeff dano's point we're also penetrating into that 5,500 other healthcare professionals that are not REMS enrolled. And that really allows us to tap into a broader patient opportunity. And that really speaks to the differentiated product profile, the fact that it's non-scheduled. You can write the product with a refill. We believe that, you know, even with what's going on in the OxyBait marketplace with generics and, you know, potential launch of Avidel's FT218 in the future, we're well-positioned for continued growth, and we're really excited about the growth opportunity that we're seeing within the OxyBait REMS-enrolled doctors as well as those that are beyond that space. And, you know, from a patient population, we've disclosed publicly that, you know, there are a subset of patients that are on both OxyBait and WakeX. It's looking in the teens, the low double digits. Certainly, we do capture patients that are treatment-resistant to stimulants, to weight-promoting agents, to oxibates. So, WAKIX really has a very unique profile that can really help in that treatment algorithm, whether you've had experience with those traditionally scheduled products that are controlled substances or naive to WAKIX. Thinking about the future landscape, David, I think given the uniqueness of WAKIX, we're well positioned both in the short term and the long term for continued sustainable growth. I think the fact that it's a non-scheduled treatment option, as we talked about, it's the only non-scheduled treatment option approved for both EDS and cataplexy. We have pharmacokinetic data that can show it can be used concomitantly with wake-promoting agent, modafinil, and oxibate. So the profile is well positioned for healthcare professionals. And lastly, as you know, that this is a very difficult disease to manage. This is very much a polypharmacy market. And I do believe that, from what I understand, that the synergistic benefits of looking through, you know, within hypocretin and histamine, I think WAKIX is well positioned as future potential products come into the marketplace. The big opportunity, lots of brands, and I think what you see every year, David, is All boats rise. All brands are growing. And we're really excited about the difference that we're making in the lives of people living with narcolepsy.

Yeah, David, and I would just add, in terms of your second question, you know, we keep a close eye, obviously, on, you know, development programs and, you know, with the new assets. And as we all know, yeah, you know, the erection to agonists and erection is sort of the next novel target in the field. Those programs are early. Obviously, there are connections between histamine neurons and hypocretin neurons mechanistically to what Jeff was saying. Roboxetine, not necessarily a novel mechanism in terms of how that operates, but we will keep a close eye on those programs. WAKIX will continue to be a differentiated product profile in this market, and I think able to use either as monotherapy or concomitantly with other treatments now and in the future. Okay, helpful.

Thank you. Thank you. Thank you. Our next question comes from Chris Howerton with Jefferies. Good morning, Chris.

Hey, good morning. Yeah, hey, good morning. Thanks so much for taking the questions. I had two. One was on kind of the, I know we talked a little bit around the first quarter dynamics, but I guess I was wondering, you know, with respect to plan resets, would you expect that to impact existing patients or the addition of new patients in terms of the first quarter numbers? So that's question one. And then question two is if you could just give us a little more color around the status of the pediatric narcolepsy package. Can you remind us, you know, are you going to do any clinical work or is it just sufficient to take the BioProJ data to the FDA? Thanks so much.

Sure. Thanks for your questions, Chris. You know, Jeff Durf will address the Q1 Dynamics.

Good morning, Chris. So your question in terms of the seasonal payer dynamics impacting new or existing, typically what you see across all pharma and across the industry is typical headwinds are with the reauthorizations. So as insurance reset and you're a chronic patient, on medication year over year. That resets whether you're taking a proton pump inhibitor, cholesterol, diabetes, antidepressant, narcolepsy. So what you see is you do get some headwinds in January. One in four Americans changes insurance every year, so there's going to be paperwork churn as reauthorizations come up. You also have a subset of existing patients That's something traditionally felt in January. You get beyond it in February. We traditionally start to see a very strong March coming out of the first quarter leading into a stronger Q2. But, you know, even with that Q1 seasonality, Chris, we've talked about, we do expect revenue growth on a year-to-year basis for Q1 and continued growth in the average number of patients on WAKIX and Q1. Thanks, Jeff.

Chris, with regards to your second question about the pediatric indication, let me provide some clarity on this. As we shared on the call, our partner Bioprojet received a positive opinion from the CHMP last month, and they're expecting an approval for a pediatric indication in Europe within about the next month or two. So with that, we're working with BioPregé on a path forward to prepare a supplemental NDA to submit to FDA for a pediatric indication. That will not require any additional development work with regards to potential indication. But we will need to take sort of the European filing and prepare a submission that's appropriate for the FDA. But while that's happening, I also want to comment on a parallel path with regards to pursuing pediatric exclusivity, which is a different regulatory pathway. And for that, we have been engaged with FDA, have gotten feedback last month on what that would require. And that would require additional clinical development work, which is what needs to be done to get pediatric exclusivity. There's discussion about what trial or trials is needed. So we've had that engagement, and based on that feedback, The clinical team is preparing the regulatory team what's called proposed pediatric study request. We submit that to the FDA to gain alignment of what needs to be done to gain pediatric exclusivity for WCAG. So we'll provide an update on those interactions later in the year. But, you know, as a reminder, the main commercial opportunity is in obtaining pediatric exclusivity, which would afford us, you know, if we're successful there, an additional six months of patent protection on the back end of the IP.

Yeah, no, that's extremely helpful. Thank you to both the Jeffs.

Yeah.

Thanks, Chris. Thank you. Our next question comes from Charles Duncan with Cantor Fitzgerald.

Hey, good morning, Jeff and team. Thanks for taking the questions and congrats on a great quarter. Had a quick commercial question and then a pipeline. Yeah, excuse me. Regarding the commercial question, average patients on, I guess I'm wondering if you can provide any additional color on what you were most impressed with. Were they new patients being prescribed or persistence? That's the commercial question. Then I'll come back around to the pipeline.

Okay. All right. Thank you. Just on average number of patients and where they're coming from.

Sure. And thank you for the question, Charles. I would say I'm equally impressed with the continued addition of new patients. Again, we're entering into year four. We continue to see strong, top-line prescription demand. But we're also seeing very good retention on patients, right, consistent within the category. For those patients that are staying on WACIX, we're looking at, you know, 90-plus percent compliance rates, which is a lot. When patients really find the right treatment in this category, you do see patients take their medication that's prescribed by their doctor. So we're just finishing up year three. Personally, for me, I'm really impressed with both of those metrics. I think our award-winning sales team continues to deliver quarter over quarter. As Jeff shared, we have an extremely talented team here. You've got 200-plus strong that are all working to help these patients. So I'm pleasantly pleased with both of those metrics, and I anticipate that I'll be pleased with those metrics moving forward each quarter.

Okay, and then regarding the pipeline for pitolacent TAM expansion, I guess I'm wondering if you think about idiopathic hypersomnia versus PWS, what are you most interested in? It seems like idiopathic hypersomnia in a phase three should be top of mind, but can we look to PWS pipeline here in the or actual presentation of the data and articulation of next steps to kind of raise the profile of that particular program versus IH for the potential for Pitolis and going forward.

Yes, sir, Charles. So first of all, I would say that obviously both of those patient populations are important because they both have a significant unmet medical need, number one.

Of the two, obviously idiopathic hypersomnia is the near-term opportunity for us and also the larger market opportunity, about 40,000 patients. So we're really excited about that program.

We see significant interest from both the patient community and the physician community and our clinical trial sites.

So we'll provide an update later in the year on enrollment progress, but significant momentum, near-term opportunity, significant market size. But with regards to Prader-Willi syndrome, a pediatric rare neurodevelopmental disorder, also an important development program for us.

About 15,000 to 20,000 patients diagnosed with PWS in the US, and we're actively engaging engaged in preparing end of phase two briefing document.

We'll put in a meeting request and look forward to good productive interactions with FDA on advancing that development program to a phase three trial. So both are important and to address unmet needs in those patient populations. as well as in advancement of our development programs.

Okay. Thanks for taking the questions, Jeff.

Thank you. Our next question comes from Corinne Jenkins with Goldman Sachs.

Good morning, too, from me. Maybe first, can you just share more color on the market research you cited? Particularly, I'm interested in what these physicians looked like, whether they were primarily sleep specialists or general psychiatrists, and what their average patient volume was. And then the other question is separately, as you think about business development and your capacity to do that, how do you think about appropriate leverage targets for the business? Thanks.

Thanks, Corinne. So, Jeff, do you want to take the first question?

Sure. So, Corinne, it was primary market research that we conducted back in November of 2022. Again, we included 70 healthcare professionals with and without experience, so there was no patient criteria to be eligible because we did want to look into both those who had not yet prescribed WAKIX as well as those that had prescribed WAKIX. Specialties included sleep specialists, neurologists, pulmonologists, psychiatrists, and some primary care doctors. And some of the specific questions that we asked them that I cited in our prepared remarks is we asked healthcare professionals how they saw their prescribing of wake exchanging in the next six months. And as I shared, the results demonstrated of those individuals with waking experience more than 95% of them stated that they would increase or stay the same with their prescribing. And of those individuals, the subset that had not yet prescribed, almost 50% of those healthcare professionals stated an intent to prescribe WACICs in the next six months. So, you know, we're really excited about what these data affirm and our belief from the future growth opportunity for WAKES and adult narcolepsy. Yeah, so Jeff, maybe I'll talk back to you for the second question. Thanks, Jeff.

Yeah, and Corinne, your question about business development. So first off, a few comments, and then I'll turn it over to Sanjay for his thoughts.

So, you know, we have a dedicated business development team and continue, you know, the really active evaluating the BD landscape and potential opportunities. Importantly, we're in a solid financial position to execute on business development. We have a strong cash position, as we said, approximately 346 million at year end last year. And also, BD continues to be an important priority for us

the target-rich environment, but we're also remaining disciplined in our approach to business development.

We want to be strategic in our approach, in our decision-making, so when we do announce a deal, it'll make sense and be a good fit for Harmony. In terms of our capacity and I'll turn it over to Sandeep.

Some thoughts there?

Sure, Jeff. You know, as you mentioned, we have $346 million approximately of cash, cash equivalents. I think the other thing is we continue to generate, you know, positive cash flow from operations. You know, as I mentioned on the call, you know, last quarter, beyond the $30 million that we paid out to Viaprojet, but, you know,

We generate about $57 million there in incremental cash. So we'll be generating cash going forward.

I think clearly the profile of the company provides us the opportunity to look at leverage. And I think the way I think about it is, look, we also have, in addition, we also have the $100 million delayed draw from Blackstone that we could also draw on, which would which would also be additional debt capital. And generally, as I think about it, you know, I think much as an asset is much closer to market, you know, there's, I'd be more comfortable with taking on additional leverage.

I think if it's an earlier asset, we could probably pay it from what we have, you know, internally in the cash generation.

And I think Our ability as we get, you know, our top line grows and we have increased profitability also gives us even the cash flow to be able to look at multiple different options. So not only just leverage, but, you know, there are many other options that we could certainly consider as a company.

Thanks, Andy.

Thanks, Corinne. Thank you. Our next question comes from Ami Fadia with Needham.

Good morning. Congrats on the nice quarter. And I've got two questions. Firstly, can you talk about where you see some small vacates in the upcoming quarters and Can you give us some type of qualitative color on how many patients per quarter you might be able to add in 2023? In the past, you've talked about about 300 to 400 patients per quarter.

Comment on that. That would be helpful. And then secondly, as you think about lifestyle, You've expanded your partnership with Bio4j. Can you talk about what type of life cycle you might have in mind and where might be the unmet need in, say, narcolepsy for a different type of formulation? That would be helpful. Thanks.

Sure, Ami. Thanks for the question. Can you repeat the first one?

We lost you for a few seconds there on your first question.

Sure. The first question is if you could sort of qualitatively give us a sense of where growth will come from. from for WCAG. You know, you'd expanded your reach for your sales force last year, and it sounds like you're seeing the benefits of that come through. But going forward, where do you see truth come? And also in that sort of in that context, if you could talk about the number of patient ads you see coming up, in the upcoming quarters, whether you think 300 to 400 patient mass could be maintained going forward. Thanks.

Okay, sure, Ami. All right, all right. Jeff, do you want to respond to that? Sure.

So, Ami, for your first question, just in terms of looking at where we see growth coming from in the future. I think as we've shared, there is still a large patient opportunity remaining, and I think where we see growth coming from, we anticipate we're still going to be continuing to add new prescribers on a very regular basis, quarter over quarter. We also expect growth within existing prescribers. Certainly, we know that there are appropriate patients, adult patients living with narcolepsy and those practices as well that have yet to have a discussion with their healthcare professional about WACIC.

So, you know, with our expanded field sales team, we can now reach the target group of about 9,500 patients

narcolepsy treating healthcare professionals, so we see growth coming from both new as well as existing writers, so continued growth in depth and breadth of our prescriber base. With respect to average patient growth, obviously we're not providing guidance looking forward, but as Sandeep shared, if you look back the first three years, we've been relatively consistently delivering, and I think that's probably a good thing to point back to.

We still are very bullish on our ability to continue to grow. We're going to continue to tap into that opportunity as the market allows.

Certainly, we've talked about the Q1 seasonal dynamics and some of the headwinds that we would anticipate and on patient ads there. We've talked about the second quarter and traditional stronger prescription growth. Traditionally in the third quarter you see less patient visits with a little bit of summer seasonality for chronic conditions where most patients chronic conditions where most patients take vacations, they're not in their offices. But then in the fourth quarter, you get a lot of those patients coming back in. So you should expect that traditional rhythm that we've seen in the last three years, and we anticipate that in 2023 moving on if that helps. Yeah, thanks, Jeff.

And, Ami, with regards to your second question and our partnership with BioPregé and the licensing agreement for, you know, new Catolysin-based assets, you know, so our thinking around that, you know, our strategy is obviously Catolysin as, you know, a novel molecule with a novel mechanism of action and WACICs, you know, performing well in the marketplace.

We're looking at, you know, opportunities and currently working with BioProject in new enhanced formulations, which will give us, you know, an opportunity potentially for new IP around, you know, some of the innovation in the formulation aspect of that, an opportunity to explore the dosage range

more and obviously extend the runway for further development. Thoughts there where we could initially extend the Narcolepsy franchise out further with new IP using the new pitocin-based assets.

We could take the current development programs that we're working on now and then eventually, you know, move them to new formulations with a longer runway and longer opportunity in the market. As well as, Tolson continues to be, you know, an interesting molecule, and the potential is to develop new programs in additional and new patient populations, you know, based on its mechanism of action, working through histamine, not just around EDS, but other symptoms we're exploring in our current programs, you know, fatigue as an outcome, as well as the potential impact on cognitive So, if with more time in new pathology-based assets, that is the strategy, and that's the current thinking.

That's very helpful. Thank you.

Yeah. Thanks, Tommy. Thank you. Our next question comes from Greg Suvanovich with Mizuho Security.

Hey, thank you very much. Congrats on a great 2022. I've got two questions. My first is just on the OPEX. The OPEX came in a bit later than we were looking for. It seems to be the lightest in several quarters. So just wondering, maybe Sandeep, if you could provide us some modeling assistance now you're looking at 2023. And then my second question, it does go back to the current company philosophy around providing guidance. You know, you had mentioned that you feel that you've got a good understanding of the rhythmicity of the business.

The drug will be going into its fourth year of launch.

So just wondering why at this point in time you're not comfortable providing forward-looking guidance, at least on revenue. Thanks.

Sandeep, want to address Ray's question? So, first, about OpEx. Oh, yeah, sure. Yeah.

Just regarding the OpEx, you know, I think there was nothing unusual, I would say, in the fourth quarter. Generally, I mean, you know, it ebbs and flows with our activity overall. As we think about 2023, you know, We'll see an evolution in our expense base growing, like, for example, on the SG&A side through additional commercialization activities that we put on. And then I think on the R&D, it's really the enrollment in our Phase 3 program for IH, which will drive some increases overall. But I would see that as more gradual increases as opposed to step changes. you know, during the quarters. And then finally, as I mentioned, you know, I think the other thing you want to make sure investors are also looking at is the tax rate overall. You know, given our success and profitability, you know, we've generated, you know, nice profitability, which obviously meant that we used up most of our NOLs, so we would expect to go forward with our tax rate, too. to be in the mid to upper 20% range. And I think finally, just operating margin, we would expect that to improve as well as our top line grows.

I think Greg's second question about guidance, and Greg, just we feel the underlying business fundamentals are strong, and we do see, you mentioned and sort of the ethnicity of the business and the consistency in the performance.

And, you know, the key metrics that, you know, are provided. And when Jeff talks about the commercial performance. So I think that, you know, that's the feeling at this time in Sunday.

You know, further thoughts on guidance.

Yeah, look, I mean, we've shown a nice conversation. consistent history. So we felt that that was appropriate in terms of being able to model the future. And I think, look, historically, you know, we've seen even the analyst community in this past quarter, you know, pretty close within a million or so of our actual results. So we feel there's a strong understanding by the investor base of our business. You know, it's relatively consistent, you know, We have one product. And certainly, you know, continue to be confident in the outlook as there's additional growth opportunities, as both Jeff discussed, and clearly the potential to be, you know, a billion-plus franchise in the coming years in our philosophy. And I think, you know, we'll continue to evolve that over time. And, you know, certainly...

you know, we could in the future look at, you know, more formally providing guidance.

Thank you very much. Take my questions. Congrats again.

Thanks, Greg.

Thank you. Our next question comes from Danielle Brill with Raymond James.

Hi, guys. Good morning. Thanks for the questions.

I guess first as a follow-up to the last one, are you comfortable then with 2023 estimates? I think it's around $580 million for the year. And then just to get a bit more granularity on how we should be thinking about our models, what are your expected trends in average revenue per patient and discontinuation rates? in 2023.

Thank you. I think Jeff Dirks can sort of provide more color on your second question. Sure.

Look, I won't specifically comment, obviously, on 2023 consensus, but I think, as I mentioned to Craig, you'll start. Consistence has, for the last many quarters, has been pretty close to, you know, our vicinity of our sales. So, you know, I believe the investment community can appropriately model our business.

So we feel good about, you know, the work that you and others are doing to help inform investors overall and continue to look at opportunities. And certainly we'll evaluate that as we go forward.

Okay. Jeff, you want to, on Danielle's second question? Sure.

So, Danielle, with respect to average revenue per patient, so it's kind of a function of our patient assistance program and percentage of patients on free goods. And, you know, one of the things that we've seen is a relatively consistent demand for our patient assistance program throughout 2022. And as we continue to grow the average number of patients, with a consistent PAP demand, you're going to see potentially some slight increases in average revenue per patient, as PAP is going to represent a smaller percentage of the overall patients on WCAG. Now, obviously, in the first quarter, there are some other factors, as we talked about, higher gross net that you might not see, but as we continue to grow the average number of patients over time, and we have a relatively consistent demand for PAP, you would anticipate a slight increase to the average revenue per patient over time, as our overall patient base grows. The second part of your question with respect to discontinuation rate, it's been relatively consistent since our launch. I mean, we've shared publicly available data that about 30% to 50% of all patients on all treatment options by the end of 12 months tend to discontinue any of the medicines in this category. WCAG has traditionally, and we've seen over the past three years, being in that range. Obviously, the chronic condition when patients are out 12 plus months, you might see a small percentage of those patients fall off in any chronic condition. But I would anticipate what you've seen historically in our patient base, we're anticipating patient medication behavior moving forward.

That's helpful. Thank you.

Thanks, Danielle.

Thank you. At this time, I show no further questions in queue. I would now like to turn the call back to Jeff Dano for any additional or closing remarks.

Thank you, Todd, and thanks to everyone for your interest in Harmony.

We finished 2022 on a strong note and look to build on that momentum in 2023 as we execute on our three-pillar growth strategy. We look forward to updating you on our progress on future calls. Thank you, and have a great day.

This concludes today's Harmony Biosciences fourth quarter and four-year 2022 financial results conference call. You may now disconnect your line and have a wonderful day.